Top Tip – IHT and the Reduced Rate of 36%
Written by Jane Alford
This week I thought we’d have a look at IHT, specifically where the reduced rate of 36% has applied since last April, where at least 10% of someone’s net estate is left to charity.
Here’s a question from our R03 calculation workbook showing how it works in practice:
Mr Grant died on 23rd March 2013, leaving £10,000 to his favourite charity, £180,000 to his wife and £350,000 to be split equally between his son and daughter. He had made no gifts during his lifetime. What is the IHT liability on Mr Grant’s estate?
Total estate 540,000
Nil rate band -325,000
Spouse exemption -180,000
The balance is £35,000.
10% of £35,000 is £3,500.
As the charitable gift is £10,000 this is over the 10% so Mr Grant will be liable to 36% rather than 40%.
Take the gift of £10,000 from £35,000 and the balance of £25,000 is taxable at 36% = £9,000
For more R03 resources go to:
Good luck to anyone sitting a J0 or AF exam next week.